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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2020

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ___________ to ________

___

Commission file number 001-15925

COMMUNITY HEALTH SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

13-3893191

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

 

 

4000 Meridian Boulevard

Franklin, Tennessee

37067

(Zip Code)

(Address of principal executive offices)

 

 

615-465-7000

(Registrant’s telephone number)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $.01 par value

CYH

New York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes      No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes      No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer  

Accelerated filer 

Smaller reporting company 

 

 

 

Non-accelerated filer 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes     No  

As of October 22, 2020, there were outstanding 119,620,952 shares of the Registrant’s Common Stock, $0.01 par value.

 

 


Community Health Systems, Inc.

Form 10-Q

For the Three and Nine Months Ended September 30, 2020

 

Part I.

 

Financial Information

 

Page

 

 

 

 

 

 

 

 

 

Item 1.

 

Financial Statements:

 

 

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Income (Loss) – Three and Nine Months Ended September 30, 2020 and September 30, 2019 (Unaudited)

 

2

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss) - Three and Nine Months Ended September 30, 2020 and September 30, 2019 (Unaudited)

 

3

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets - September 30, 2020 and December 31, 2019 (Unaudited)

 

4

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2020 and September 30, 2019 (Unaudited)

 

5

 

 

 

 

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

6

 

 

 

 

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

32

 

 

 

 

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

 

59

 

 

 

 

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

59

 

 

 

 

 

 

 

Part II.

 

Other Information

 

 

 

 

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

60

 

 

 

 

 

 

 

 

 

Item 1A.

 

Risk Factors

 

63

 

 

 

 

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

65

 

 

 

 

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

65

 

 

 

 

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

65

 

 

 

 

 

 

 

 

 

Item 5.

 

Other Information

 

65

 

 

 

 

 

 

 

 

 

Item 6.

 

Exhibits

 

66

 

 

 

 

 

 

 

Signatures

 

67

 

 


 

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(In millions, except share and per share data)

(Unaudited)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net operating revenues

 

$

3,126

 

 

$

3,246

 

 

$

8,670

 

 

$

9,925

 

Operating costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and benefits

 

 

1,365

 

 

 

1,469

 

 

 

4,054

 

 

 

4,499

 

Supplies

 

 

523

 

 

 

526

 

 

 

1,439

 

 

 

1,623

 

Other operating expenses

 

 

736

 

 

 

812

 

 

 

2,211

 

 

 

2,516

 

Government and other legal settlements and related costs

 

 

 

 

 

26

 

 

 

4

 

 

 

35

 

Lease cost and rent

 

 

85

 

 

 

79

 

 

 

248

 

 

 

240

 

Pandemic relief funds

 

 

 

 

 

 

 

 

(448

)

 

 

 

Depreciation and amortization

 

 

139

 

 

 

151

 

 

 

424

 

 

 

456

 

Impairment and (gain) loss on sale of businesses, net

 

 

(7

)

 

 

(1

)

 

 

48

 

 

 

70

 

Total operating costs and expenses

 

 

2,841

 

 

 

3,062

 

 

 

7,980

 

 

 

9,439

 

Income from operations

 

 

285

 

 

 

184

 

 

 

690

 

 

 

486

 

Interest expense, net

 

 

257

 

 

 

259

 

 

 

779

 

 

 

782

 

(Gain) loss from early extinguishment of debt

 

 

(115

)

 

 

 

 

 

(111

)

 

 

31

 

Equity in earnings of unconsolidated affiliates

 

 

(5

)

 

 

(3

)

 

 

(11

)

 

 

(12

)

Income (loss) before income taxes

 

 

148

 

 

 

(72

)

 

 

33

 

 

 

(315

)

Provision for (benefit from) income taxes

 

 

20

 

 

 

(74

)

 

 

(221

)

 

 

(71

)

Net income (loss)

 

 

128

 

 

 

2

 

 

 

254

 

 

 

(244

)

Less: Net income attributable to noncontrolling interests

 

 

16

 

 

 

19

 

 

 

54

 

 

 

58

 

Net income (loss) attributable to Community Health Systems,

   Inc. stockholders

 

$

112

 

 

$

(17

)

 

$

200

 

 

$

(302

)

Earnings (loss) per share attributable to Community Health

   Systems, Inc. common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.98

 

 

$

(0.15

)

 

$

1.74

 

 

$

(2.66

)

Diluted

 

$

0.97

 

 

$

(0.15

)

 

$

1.74

 

 

$

(2.66

)

Weighted-average number of shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

115,015,460

 

 

 

113,891,721

 

 

 

114,764,050

 

 

 

113,672,798

 

Diluted

 

 

115,640,852

 

 

 

113,891,721

 

 

 

115,012,202

 

 

 

113,672,798

 

 

See accompanying notes to the condensed consolidated financial statements.


2


COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In millions)

(Unaudited)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net income (loss)

 

$

128

 

 

$

2

 

 

$

254

 

 

$

(244

)

Other comprehensive (loss) income, net of income taxes:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net change in fair value of interest rate swaps, net of tax

 

 

 

 

 

(1

)

 

 

 

 

 

(3

)

Net change in fair value of available-for-sale debt securities,

   net of tax

 

 

 

 

 

1

 

 

 

3

 

 

 

5

 

Amortization and recognition of unrecognized pension cost

   components, net of tax

 

 

 

 

 

 

 

 

1

 

 

 

 

Other comprehensive income

 

 

 

 

 

 

 

 

4

 

 

 

2

 

Comprehensive income (loss)

 

 

128

 

 

 

2

 

 

 

258

 

 

 

(242

)

Less: Comprehensive income attributable to noncontrolling

   interests

 

 

16

 

 

 

19

 

 

 

54

 

 

 

58

 

Comprehensive income (loss) attributable to Community Health

   Systems, Inc. stockholders

 

$

112

 

 

$

(17

)

 

$

204

 

 

$

(300

)

 

See accompanying notes to the condensed consolidated financial statements.


3


COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except share data)

(Unaudited)

 

 

 

September 30,

2020

 

 

December 31,

2019

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,823

 

 

$

216

 

Patient accounts receivable

 

 

1,956

 

 

 

2,258

 

Supplies

 

 

337

 

 

 

354

 

Prepaid income taxes

 

 

50

 

 

 

48

 

Prepaid expenses and taxes

 

 

166

 

 

 

193

 

Other current assets

 

 

360

 

 

 

358

 

Total current assets

 

 

4,692

 

 

 

3,427

 

Property and equipment

 

 

9,293

 

 

 

9,653

 

Less accumulated depreciation and amortization

 

 

(4,003

)

 

 

(4,045

)

Property and equipment, net

 

 

5,290

 

 

 

5,608

 

Goodwill

 

 

4,220

 

 

 

4,328

 

Deferred income taxes

 

 

88

 

 

 

38

 

Other assets, net

 

 

2,226

 

 

 

2,208

 

Total assets

 

$

16,516

 

 

$

15,609

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current maturities of long-term debt

 

$

19

 

 

$

20

 

Current operating lease liabilities

 

 

131

 

 

 

136

 

Accounts payable

 

 

710

 

 

 

811

 

Accrued liabilities:

 

 

 

 

 

 

 

 

Employee compensation

 

 

580

 

 

 

594

 

Accrued interest

 

 

180

 

 

 

189

 

Other

 

 

2,009

 

 

 

532

 

Total current liabilities

 

 

3,629

 

 

 

2,282

 

Long-term debt

 

 

12,860

 

 

 

13,385

 

Deferred income taxes

 

 

29

 

 

 

200

 

Long-term operating lease liabilities

 

 

523

 

 

 

487

 

Other long-term liabilities

 

 

951

 

 

 

894

 

Total liabilities

 

 

17,992

 

 

 

17,248

 

Redeemable noncontrolling interests in equity of consolidated subsidiaries

 

 

481

 

 

 

502

 

STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

 

Community Health Systems, Inc. stockholders’ deficit:

 

 

 

 

 

 

 

 

Preferred stock, $.01 par value per share, 100,000,000 shares authorized; none issued

 

 

 

 

 

 

Common stock, $.01 par value per share, 300,000,000 shares authorized; 119,604,720

   shares issued and outstanding at September 30, 2020, and 117,822,631 shares issued

   and outstanding at December 31, 2019

 

 

1

 

 

 

1

 

Additional paid-in capital

 

 

2,005

 

 

 

2,008

 

Accumulated other comprehensive loss

 

 

(5

)

 

 

(9

)

Accumulated deficit

 

 

(4,018

)

 

 

(4,218

)

Total Community Health Systems, Inc. stockholders’ deficit

 

 

(2,017

)

 

 

(2,218

)

Noncontrolling interests in equity of consolidated subsidiaries

 

 

60

 

 

 

77

 

Total stockholders’ deficit

 

 

(1,957

)

 

 

(2,141

)

Total liabilities and stockholders’ deficit

 

$

16,516

 

 

$

15,609

 

 

See accompanying notes to the condensed consolidated financial statements.


4


COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

254

 

 

$

(244

)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

424

 

 

 

456

 

Deferred income taxes

 

 

(223

)

 

 

(73

)

Government and other legal settlements and related costs

 

 

4

 

 

 

25

 

Stock-based compensation expense

 

 

8

 

 

 

8

 

Impairment and (gain) loss on sale of businesses, net

 

 

48

 

 

 

70

 

(Gain) loss from early extinguishment of debt

 

 

(111

)

 

 

31

 

Other non-cash expenses, net

 

 

99

 

 

 

140

 

Changes in operating assets and liabilities, net of effects of acquisitions and divestitures:

 

 

 

 

 

 

 

 

Patient accounts receivable

 

 

281

 

 

 

82

 

Supplies, prepaid expenses and other current assets

 

 

16

 

 

 

40

 

Medicare accelerated payments

 

 

1,159

 

 

 

 

Repayment/derecognition of Medicare accelerated payments

 

 

(22

)

 

 

 

Unrecognized pandemic relief funds

 

 

271

 

 

 

 

Accounts payable, accrued liabilities and income taxes

 

 

(81

)

 

 

(242

)

Other

 

 

(25

)

 

 

(102

)

Net cash provided by operating activities

 

 

2,102

 

 

 

191

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Acquisitions of facilities and other related businesses

 

 

(1

)

 

 

(13

)

Purchases of property and equipment

 

 

(317

)

 

 

(322

)

Proceeds from disposition of hospitals and other ancillary operations

 

 

347

 

 

 

363

 

Proceeds from sale of property and equipment

 

 

4

 

 

 

1

 

Purchases of available-for-sale debt securities and equity securities

 

 

(68

)

 

 

(58

)

Proceeds from sales of available-for-sale debt securities and equity securities

 

 

80

 

 

 

72

 

Increase in other investments

 

 

(36

)

 

 

(146

)

Net cash provided by (used in) investing activities

 

 

9

 

 

 

(103

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Repurchase of restricted stock shares for payroll tax withholding requirements

 

 

(1

)

 

 

(1

)

Deferred financing costs and other debt-related costs

 

 

(32

)

 

 

(28

)

Proceeds from noncontrolling investors in joint ventures

 

 

 

 

 

10

 

Redemption of noncontrolling investments in joint ventures

 

 

(4

)

 

 

(6

)

Distributions to noncontrolling investors in joint ventures

 

 

(84

)

 

 

(78

)

Proceeds from sale-lease back

 

 

2

 

 

 

56

 

Other borrowings

 

 

31

 

 

 

26

 

Issuance of long-term debt

 

 

1,462

 

 

 

2,489

 

Proceeds from ABL Facility

 

 

540

 

 

 

25

 

Repayments of long-term indebtedness

 

 

(2,418

)

 

 

(2,620

)

Net cash used in financing activities

 

 

(504

)

 

 

(127

)

Net change in cash and cash equivalents

 

 

1,607

 

 

 

(39

)

Cash and cash equivalents at beginning of period

 

 

216

 

 

 

196

 

Cash and cash equivalents at end of period

 

$

1,823

 

 

$

157

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Interest payments

 

$

(765

)

 

$

(810

)

Income tax refunds (payments), net

 

$

(2

)

 

$

3

 

 

See accompanying notes to the condensed consolidated financial statements.

 

 

5


 

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

1.  BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES 

The unaudited condensed consolidated financial statements of Community Health Systems, Inc. (the “Parent” or “Parent Company”) and its subsidiaries (the “Company”) as of September 30, 2020 and December 31, 2019 and for the three-month and nine-month periods ended September 30, 2020 and 2019, have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). In the opinion of management, such information contains all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for such periods. All intercompany transactions and balances have been eliminated. The results of operations for the three and nine months ended September 30, 2020, are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2020. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements. Actual results could differ from these estimates under different assumptions or conditions.

Certain information and disclosures normally included in the notes to the consolidated financial statements have been condensed or omitted as permitted by the rules and regulations of the Securities and Exchange Commission (the “SEC”). The Company believes the disclosures are adequate to make the information presented not misleading. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2019, contained in the Company’s Annual Report on Form 10-K filed with the SEC on February 20, 2020 (“2019 Form 10-K”). Certain prior period amounts have been reclassified to conform to the current period presentation within the condensed consolidated statements of cash flows.

During the first quarter of 2020, the Company early adopted the SEC’s Financial Disclosures About Guarantors and Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralize a Registrant’s Securities rules, which simplify the disclosure requirements related to the Company’s registered debt securities under Rule 3-10 of Regulation S-X (see Note 15).

Noncontrolling interests in less-than-wholly-owned consolidated subsidiaries of the Parent are presented as a component of total equity on the condensed consolidated balance sheets to distinguish between the interests of the Parent Company and the interests of the noncontrolling owners. Noncontrolling interests that are redeemable or may become redeemable at a fixed or determinable price at the option of the holder or upon the occurrence of an event outside of the control of the Company are presented in mezzanine equity on the condensed consolidated balance sheets.

Substantially all of the Company’s operating costs and expenses are “cost of revenue” items. Operating costs that could be classified as general and administrative by the Company include the Company’s corporate office costs at its Franklin, Tennessee office, which were $41 million and $48 million for the three months ended September 30, 2020 and 2019, respectively, and $136 million and $135 million for the nine months ended September 30, 2020 and 2019, respectively. Included in these corporate office costs is stock-based compensation of $3 million and $2 million for the three months ended September 30, 2020 and 2019, respectively, and $8 million for both of the nine-month periods ended September 30, 2020 and 2019.

Throughout these notes to the unaudited condensed consolidated financial statements, Community Health Systems, Inc., and its consolidated subsidiaries are referred to on a collective basis as the “Company.” This drafting style is not meant to indicate that the publicly traded Parent or any particular subsidiary of the Parent owns or operates any asset, business, or property. The hospitals, operations and businesses described in this filing are owned and operated by distinct and indirect subsidiaries of Community Health Systems, Inc.

Revenue Recognition.   

Net Operating Revenues

Net operating revenues are recorded at the transaction price estimated by the Company to reflect the total consideration due from patients and third-party payors in exchange for providing goods and services in patient care. These services are considered to be a single performance obligation and have a duration of less than one year. Revenues are recorded as these goods and services are provided. The